Sainsbury's may shut 200 Argos stores in HRG takeover

Sainsbury's could shut up to 200 Argos stores and relocate them within its supermarkets as part of a proposed takeover of Home Retail Group (HRG).

Sainsbury's said it was considering its options after an initial bid for HRG, which also owns Homebase, was rejected.

In a presentation aimed at easing investors' concerns, it said a takeover was "strategically compelling".

The comments came as Sainsbury's announced a 0.4% fall in like-for-like sales over the Christmas period.

The supermarket set out the case for its takeover of HRG, which also owns Homebase, in a 22 page presentation.

There are reports that that Sainsbury's initial offer was worth about £1.1bn, but that HRG shareholders are holding out for an improved offer of around £1.6bn, or around 200p-a-share.

But some analysts had been sceptical, and Sainsbury's share price fell when the bid interest was first disclosed. The price was down 0.24% by midday on Wednesday.

'No job losses'

Sainsbury's chief executive Mike Coupe stressed the closure of any Argos stores would not involve job losses.

The leases of around half of Argos' 734 stores across the UK are due for renewal over the next four to five years.

If the takeover went ahead Sainsbury's would look at which leases to renew and which to let go, Mr Coupe said.

Where a lease was allowed to lapse, the Argos store would be moved into the nearby Sainsbury's as a concession.

At present Sainsbury's has identified between 150 and 200 Argos stores that could potentially be moved into a nearby Sainsbury's store, the BBC understands.

No 'must do deal'

Sainsbury's chief financial officer John Rogers said its proposed takeover was "a very strategically compelling opportunity and if done at the right price financially compelling. But it's not a must-do deal, it's not a deal that we have to do".

"We'll look at this in a very financially disciplined way and we won't over pay for this transaction," he added.

Home Retail Group's shares rose 4.2% to 147.90p following Mr Rogers' comments.

Also on Wednesday, Sainsbury's released a trading update for the three months to 9 January. The supermarket reported a 0.4% fall in like-for-like sales excluding fuel compared with a year earlier.

'Challenging' times

Mr Coupe said the supermarket had traded well in "a highly competitive market" adding Sainsbury's third quarter sales was an improvement on the previous two quarters and he expects the second half of the financial year to be better than the first half.

He said the number of transactions in the seven days to Christmas had rise by 2.6% to 30 million.

But he warned that "food deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future".

Christmas retail: Winners and losers

Himanshu Pal, an analyst at Kantar Retail, said Sainsbury's had done "quite well" over the Christmas period, given the 2.6% rise in transactions and a rise in market share.

"Sainsbury's is making the right moves in simplifying its pricing and strategy and reducing multi-buy offers," he added.

Mr Pal added there is "a slight fightback from the big four supermarkets in terms of pricing and investment".

But he said he expected the discounters, such as Aldi and Lidl, to continue to capture market share from them.

Mr Coupe said Sainsbury's would "continue to remain competitive on price and our performance this quarter provides further evidence that our strategy is working".

Shares in Sainsbury's fell nearly 1% to 248.9p in early trading. On Tuesday shares had risen 3.3% after Morrisons' strong results.

On Tuesday Morrisons surprised analysts by reporting its first positive sales in more than a year.

Rising market share

According to market share figures from research firm Kantar Worldpanel, Sainsbury's was the best performing of the big four supermarkets - which includes Tesco, Sainsbury's Asda and Morrisons - in the 12 weeks to 3 January.

Its market share rose 0.1 percentage points to 17% compared with the same period in 2014, making it the only one of the big four to increase its share.

In November, Sainsbury's reported a fall in half-year profits, citing a "particularly challenging" market as it said like-for like sales in the six months to the end of September fell 1.6%

Underlying pre-tax profits for the period fell 17.9% to £308m.

According to stock broker, Bernstein, Sainsbury's was also the only listed supermarket to open new stores in the period, with 16 new convenience stores.